The application is to manage customer’s transaction in a small finance house; it should track customer details, investments
such as fixed deposit and loan.please find the requirements below. Kindly provide me with a detail proposal, system
requirements and deliverables to deliver.
Note: For customers to caryyout any transaction with the finance house, his or her details must have been captured and stored
in the company database. Such information are:
*Title (Mr, Mrs, Miss, Dr, etc), *Gender (Male or Female), *Branch Office, *FirstName, Middle Name, *Surname, Date of Birth,
Marital Status (Single, Married, Divorced, Separated, Window), Residential Address (street, city, state) Mailing / Postal
Address (street, city, state), Telephone Numbers (office Telephone-1, Home Telephone-2), fax number, mobile number, email,
nationality, preferred means of contact (post, email, phone/sms) next of kin (title, gender, relationship, first name, middle
name, surname, date of birth, email, office telephone, home telephone, mobile number.
Application Process
Customers can either apply online or fill and submit paper application to open an account with the finance house. If online,
customers fill application from the company secure site online, attached all the necessary forms (such as customer reference
form, signatory form and passport photograph), and submit application. If application is filled on a paper form and submitted
to customer care officer, who inturn fill all the details into the application and attach scan copies of necessary forms into
the application and submit.
Once submitted, application details are automatically stored on company database (on internal network), and alert the
administrative officer via SMS and email of applications awaiting his or her review.
The administrative officer logon to the application, and he or she is automatically taken to his or her inbox. Once the
administrative officer clicks on a particular customer’s application, the details of the application is open up to the
administrative officer for her/his review. The administrative staff can either accept the application by clicking the accept
checkbox or put the application onhold. If acepted, an SMS and email is automatically sent to the applicant that application
is under review, If on-hold, administrative officer shall enter a comment into the application to alert applicant of action
to be taken for his/her application to be processed.
Once the application is accepted, the administrative staff shall assign a routing code to the application for review of the
applicant application. The application is then routed to the next reviewer (Account Officer).
Account officer reviews the application and the application is routed to the next reviewer (supervisor or manager).
Upon the manager or supervisor’s approval, the application automatically generate account number for the applicant and an SMS
and email is automatically sent to the applicant for collection of his/her account number.
Note: Routing code should be configured and generated in a central location by the administrator, and assign to application
by administrative staff. By default, after submission of application by applicant or customer care officer, it should go
straight to administrative officer inbox.
When application is routed for review, it should notify reviewers via SMS and email of application awaiting their review.
Reviewer should have the capability to delegate to other personnel for review and should be able to add or attach comments
Applicant should have the capability to check status of application online, an application code is generated online or
assigned by customer care if paper application is submitted. The code shall be used to track status online.
The application should store customer forms in a folder structure like window explorer, and all form should be associated to
the customer accounts. Attached forms should have reference title and numbers assigned to each form and arranged
alpabetically.
User’s should have the capability to search for customer details through account number, or last name and first name. But
only authorized users should be allow to view customers details and attached forms.
Loan Process.
Customers can apply for loan, once he/she has an account with the finance house. Application can either be submitted online
or through customer care officer by submitting a paper application.
The application should carry the following:
Loan details:
Customer Type of Account (Joint or Individual)
Account Number & Account Name
Type of loan (Individual, Corporate, Others)
Amount requested
Interest Rate (this is base on type of loan, it is automatically display after selecting type of loan).
Number of months (periods)
Payment frequency (Monthly, Quarterly, Yearly)
Payment month (start month for repayment)
Payment month due
Purpose of loan
Equity Contribution
Management Fee
Arrangement Fee
Maximum Monthly debt burden
Age at expiration of loan
Documentation to be supplied by applicant are: Proof of Income, Employeer’s confirmation letter, bank account statements,
register title of property, proof of date of birth.
Applicant details:
The application will move to the next page for applicant to fill his/her details as follows:
i. employer/self employed.
ii. position.
iii. years employed.
iv. employer’s address.
employer’s contact.
v. salary per month.
vi. Previous employer.
vii. Position.
viii. years employed.
ix. previous employer’s address
Collateral details:
The application will move to the next page for applicant to fill collateral details as follows:
i. address
ii. year built
iii. date purchased
iv. present value
v. balance owing
vi. title in names of
vii. address of title holder
viii. name and address of insurance carrier.
5. ASSET & DEBT INFORMATION
The application will move to the next page for applicant to fill ASSET & DEBT INFORMATION details as follows:
ASSETS OWNED
DESCRIPTION OF ASSETS NAME IN WHICH THE ACCOUNT IS CARRIED VALUE
CHECKING ACCOUNT NUMBER(S)
SAVINGS ACCOUNT NUMBER(S)
CERTIFICATE OF DEPOSIT(S)
MARKETABLE SECURITIES( issuer, type, no. of shares)
REAL ESTATE(location, date acquired)
LIFE INSURANCE(issuer, face value)
AUTOMOBILES(make, model, year)
OTHER
TOTAL ASSETS
Once the application is completed online, and applicant have attached all the necessary documents and click ok, The
application should calculate amortization base on these parameters: Amount, Interest, periods, and payment frequency. once
the applicant click submit, this detail should be stored in the company database.
The credit unit staff assigned to receive applications, automatically receive alert via SMS or email of application awaiting
his or her review.
The review process is same as above.
Report shall be in portrat and landscape.
The application should be developed with Visual studio 2008 (VB.net) and SQL Server 2005. Please note that client does not
have the resources for sharepoint.
The application shall interface with other applications.
Kindly provide a detail proposal to capture your deliverables and system specification including sample screen shot.
I would appreciate your prompt response so as to agree on the cost and proceed to executing the project.
Sunday, November 15, 2009
Portfolio Management | Pro Freelance Projects
The application is to manage customer’s transaction in a small finance house; it should track customer details, investments
such as fixed deposit and loan.please find the requirements below. Kindly provide me with a detail proposal, system
requirements and deliverables to deliver.
Note: For customers to caryyout any transaction with the finance house, his or her details must have been captured and stored
in the company database. Such information are:
*Title (Mr, Mrs, Miss, Dr, etc), *Gender (Male or Female), *Branch Office, *FirstName, Middle Name, *Surname, Date of Birth,
Marital Status (Single, Married, Divorced, Separated, Window), Residential Address (street, city, state) Mailing / Postal
Address (street, city, state), Telephone Numbers (office Telephone-1, Home Telephone-2), fax number, mobile number, email,
nationality, preferred means of contact (post, email, phone/sms) next of kin (title, gender, relationship, first name, middle
name, surname, date of birth, email, office telephone, home telephone, mobile number.
Application Process
Customers can either apply online or fill and submit paper application to open an account with the finance house. If online,
customers fill application from the company secure site online, attached all the necessary forms (such as customer reference
form, signatory form and passport photograph), and submit application. If application is filled on a paper form and submitted
to customer care officer, who inturn fill all the details into the application and attach scan copies of necessary forms into
the application and submit.
Once submitted, application details are automatically stored on company database (on internal network), and alert the
administrative officer via SMS and email of applications awaiting his or her review.
The administrative officer logon to the application, and he or she is automatically taken to his or her inbox. Once the
administrative officer clicks on a particular customer’s application, the details of the application is open up to the
administrative officer for her/his review. The administrative staff can either accept the application by clicking the accept
checkbox or put the application onhold. If acepted, an SMS and email is automatically sent to the applicant that application
is under review, If on-hold, administrative officer shall enter a comment into the application to alert applicant of action
to be taken for his/her application to be processed.
Once the application is accepted, the administrative staff shall assign a routing code to the application for review of the
applicant application. The application is then routed to the next reviewer (Account Officer).
Account officer reviews the application and the application is routed to the next reviewer (supervisor or manager).
Upon the manager or supervisor’s approval, the application automatically generate account number for the applicant and an SMS
and email is automatically sent to the applicant for collection of his/her account number.
Note: Routing code should be configured and generated in a central location by the administrator, and assign to application
by administrative staff. By default, after submission of application by applicant or customer care officer, it should go
straight to administrative officer inbox.
When application is routed for review, it should notify reviewers via SMS and email of application awaiting their review.
Reviewer should have the capability to delegate to other personnel for review and should be able to add or attach comments
Applicant should have the capability to check status of application online, an application code is generated online or
assigned by customer care if paper application is submitted. The code shall be used to track status online.
The application should store customer forms in a folder structure like window explorer, and all form should be associated to
the customer accounts. Attached forms should have reference title and numbers assigned to each form and arranged
alpabetically.
User’s should have the capability to search for customer details through account number, or last name and first name. But
only authorized users should be allow to view customers details and attached forms.
Loan Process.
Customers can apply for loan, once he/she has an account with the finance house. Application can either be submitted online
or through customer care officer by submitting a paper application.
The application should carry the following:
Loan details:
Customer Type of Account (Joint or Individual)
Account Number & Account Name
Type of loan (Individual, Corporate, Others)
Amount requested
Interest Rate (this is base on type of loan, it is automatically display after selecting type of loan).
Number of months (periods)
Payment frequency (Monthly, Quarterly, Yearly)
Payment month (start month for repayment)
Payment month due
Purpose of loan
Equity Contribution
Management Fee
Arrangement Fee
Maximum Monthly debt burden
Age at expiration of loan
Documentation to be supplied by applicant are: Proof of Income, Employeer’s confirmation letter, bank account statements,
register title of property, proof of date of birth.
Applicant details:
The application will move to the next page for applicant to fill his/her details as follows:
i. employer/self employed.
ii. position.
iii. years employed.
iv. employer’s address.
employer’s contact.
v. salary per month.
vi. Previous employer.
vii. Position.
viii. years employed.
ix. previous employer’s address
Collateral details:
The application will move to the next page for applicant to fill collateral details as follows:
i. address
ii. year built
iii. date purchased
iv. present value
v. balance owing
vi. title in names of
vii. address of title holder
viii. name and address of insurance carrier.
5. ASSET & DEBT INFORMATION
The application will move to the next page for applicant to fill ASSET & DEBT INFORMATION details as follows:
ASSETS OWNED
DESCRIPTION OF ASSETS NAME IN WHICH THE ACCOUNT IS CARRIED VALUE
CHECKING ACCOUNT NUMBER(S)
SAVINGS ACCOUNT NUMBER(S)
CERTIFICATE OF DEPOSIT(S)
MARKETABLE SECURITIES( issuer, type, no. of shares)
REAL ESTATE(location, date acquired)
LIFE INSURANCE(issuer, face value)
AUTOMOBILES(make, model, year)
OTHER
TOTAL ASSETS
Once the application is completed online, and applicant have attached all the necessary documents and click ok, The
application should calculate amortization base on these parameters: Amount, Interest, periods, and payment frequency. once
the applicant click submit, this detail should be stored in the company database.
The credit unit staff assigned to receive applications, automatically receive alert via SMS or email of application awaiting
his or her review.
The review process is same as above.
Report shall be in portrat and landscape.
The application should be developed with Visual studio 2008 (VB.net) and SQL Server 2005. Please note that client does not
have the resources for sharepoint.
The application shall interface with other applications.
Kindly provide a detail proposal to capture your deliverables and system specification including sample screen shot.
I would appreciate your prompt response so as to agree on the cost and proceed to executing the project.
such as fixed deposit and loan.please find the requirements below. Kindly provide me with a detail proposal, system
requirements and deliverables to deliver.
Note: For customers to caryyout any transaction with the finance house, his or her details must have been captured and stored
in the company database. Such information are:
*Title (Mr, Mrs, Miss, Dr, etc), *Gender (Male or Female), *Branch Office, *FirstName, Middle Name, *Surname, Date of Birth,
Marital Status (Single, Married, Divorced, Separated, Window), Residential Address (street, city, state) Mailing / Postal
Address (street, city, state), Telephone Numbers (office Telephone-1, Home Telephone-2), fax number, mobile number, email,
nationality, preferred means of contact (post, email, phone/sms) next of kin (title, gender, relationship, first name, middle
name, surname, date of birth, email, office telephone, home telephone, mobile number.
Application Process
Customers can either apply online or fill and submit paper application to open an account with the finance house. If online,
customers fill application from the company secure site online, attached all the necessary forms (such as customer reference
form, signatory form and passport photograph), and submit application. If application is filled on a paper form and submitted
to customer care officer, who inturn fill all the details into the application and attach scan copies of necessary forms into
the application and submit.
Once submitted, application details are automatically stored on company database (on internal network), and alert the
administrative officer via SMS and email of applications awaiting his or her review.
The administrative officer logon to the application, and he or she is automatically taken to his or her inbox. Once the
administrative officer clicks on a particular customer’s application, the details of the application is open up to the
administrative officer for her/his review. The administrative staff can either accept the application by clicking the accept
checkbox or put the application onhold. If acepted, an SMS and email is automatically sent to the applicant that application
is under review, If on-hold, administrative officer shall enter a comment into the application to alert applicant of action
to be taken for his/her application to be processed.
Once the application is accepted, the administrative staff shall assign a routing code to the application for review of the
applicant application. The application is then routed to the next reviewer (Account Officer).
Account officer reviews the application and the application is routed to the next reviewer (supervisor or manager).
Upon the manager or supervisor’s approval, the application automatically generate account number for the applicant and an SMS
and email is automatically sent to the applicant for collection of his/her account number.
Note: Routing code should be configured and generated in a central location by the administrator, and assign to application
by administrative staff. By default, after submission of application by applicant or customer care officer, it should go
straight to administrative officer inbox.
When application is routed for review, it should notify reviewers via SMS and email of application awaiting their review.
Reviewer should have the capability to delegate to other personnel for review and should be able to add or attach comments
Applicant should have the capability to check status of application online, an application code is generated online or
assigned by customer care if paper application is submitted. The code shall be used to track status online.
The application should store customer forms in a folder structure like window explorer, and all form should be associated to
the customer accounts. Attached forms should have reference title and numbers assigned to each form and arranged
alpabetically.
User’s should have the capability to search for customer details through account number, or last name and first name. But
only authorized users should be allow to view customers details and attached forms.
Loan Process.
Customers can apply for loan, once he/she has an account with the finance house. Application can either be submitted online
or through customer care officer by submitting a paper application.
The application should carry the following:
Loan details:
Customer Type of Account (Joint or Individual)
Account Number & Account Name
Type of loan (Individual, Corporate, Others)
Amount requested
Interest Rate (this is base on type of loan, it is automatically display after selecting type of loan).
Number of months (periods)
Payment frequency (Monthly, Quarterly, Yearly)
Payment month (start month for repayment)
Payment month due
Purpose of loan
Equity Contribution
Management Fee
Arrangement Fee
Maximum Monthly debt burden
Age at expiration of loan
Documentation to be supplied by applicant are: Proof of Income, Employeer’s confirmation letter, bank account statements,
register title of property, proof of date of birth.
Applicant details:
The application will move to the next page for applicant to fill his/her details as follows:
i. employer/self employed.
ii. position.
iii. years employed.
iv. employer’s address.
employer’s contact.
v. salary per month.
vi. Previous employer.
vii. Position.
viii. years employed.
ix. previous employer’s address
Collateral details:
The application will move to the next page for applicant to fill collateral details as follows:
i. address
ii. year built
iii. date purchased
iv. present value
v. balance owing
vi. title in names of
vii. address of title holder
viii. name and address of insurance carrier.
5. ASSET & DEBT INFORMATION
The application will move to the next page for applicant to fill ASSET & DEBT INFORMATION details as follows:
ASSETS OWNED
DESCRIPTION OF ASSETS NAME IN WHICH THE ACCOUNT IS CARRIED VALUE
CHECKING ACCOUNT NUMBER(S)
SAVINGS ACCOUNT NUMBER(S)
CERTIFICATE OF DEPOSIT(S)
MARKETABLE SECURITIES( issuer, type, no. of shares)
REAL ESTATE(location, date acquired)
LIFE INSURANCE(issuer, face value)
AUTOMOBILES(make, model, year)
OTHER
TOTAL ASSETS
Once the application is completed online, and applicant have attached all the necessary documents and click ok, The
application should calculate amortization base on these parameters: Amount, Interest, periods, and payment frequency. once
the applicant click submit, this detail should be stored in the company database.
The credit unit staff assigned to receive applications, automatically receive alert via SMS or email of application awaiting
his or her review.
The review process is same as above.
Report shall be in portrat and landscape.
The application should be developed with Visual studio 2008 (VB.net) and SQL Server 2005. Please note that client does not
have the resources for sharepoint.
The application shall interface with other applications.
Kindly provide a detail proposal to capture your deliverables and system specification including sample screen shot.
I would appreciate your prompt response so as to agree on the cost and proceed to executing the project.
Saturday, November 14, 2009
interview Q
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I’m exceptionally proud and honored to present an interview with one of the top value investors of India, Mr. Chetan Parikh. This interview with Mr.Parikh represents one of the highlights of my career. Mr. Parikh is a man whom I admire and who has extensively contributed to the value investing community (via Capital Ideas Online and his numerous writings). I hope you enjoy the interview.
Before we begin, I would also like to thank Mr. Prashant Patel, a loyal reader of SimoleonSense, for facilitating this interview. Thank you very much, I wish both gentleman the best of health.
-Cordially,
Miguel Barbosa
Founder of SimoleonSense.com “Enriching Ideas for Intelligent Investors”
I’m exceptionally proud and honored to present an interview with one of the top value investors of India, Mr. Chetan Parikh. This interview with Mr.Parikh represents one of the highlights of my career. Mr. Parikh is a man whom I admire and who has extensively contributed to the value investing community (via Capital Ideas Online and his numerous writings). I hope you enjoy the interview.
Before we begin, I would also like to thank Mr. Prashant Patel, a loyal reader of SimoleonSense, for facilitating this interview. Thank you very much, I wish both gentleman the best of health.
-Cordially,
Miguel Barbosa
Founder of SimoleonSense.com “Enriching Ideas for Intelligent Investors”
Opening Questions
Q. There are many different approaches to investing. What led you to choose the value approach?
A. Value investing is a logical, safe and disciplined approach to investing. It requires a lot of patience which fits in with my temperament.
Q. Which investors do you admire? Besides these investors who else has influenced you?
A. Any value investor can learn a lot from the Masters. In India I’ve listened to and learnt from Prof. Rusi Jal Taraporevala and Mr. Chandrakant Sampat.
Q. What’s your opinion of the efficient markets hypothesis and practitioners of technical analysis?
A. I believe that the efficient market hypothesis in the various avatars (strong, semi-strong and weak) is not correct. Sometimes prices deviate far away from intrinsic values and it is possible to earn high risk adjusted returns. In fact, the lower the downside risk, the higher can be the upside reward. I do not know anything about technical analysis.
Q. Tells us about your approach to fundamental analysis-what is your focus? How do you search for your investment ideas? Where do most of these ideas come from? Describe your evaluation process (both quantitative & qualitative)? How long do you hold on to your positions?
A. My firm, Jeetay, principally invests in publicly traded Indian securities and seeks to maximize investors’ capital by buying securities trading at values materially lower than their true business value.
Jeetay aims to achieve high absolute rates of return while minimizing risk of capital loss. Jeetay combines the analytical vigour of determining the fair value of a security with a deep understanding of the Indian markets. Jeetay will invest in securities where it can ascertain the reasons for the market’s mispricing and the likelihood of the mispricing being corrected.
Jeetay follows the value investment philosophy, which means that the objective is to buy a security trading at a significant discount to its intrinsic value. Since the focus is on discovering undervalued stocks, the fund doesn’t base its investments on macro-economic factors like GDP growth.
Jeetay determines intrinsic value as the present value of the future cash flows of a company discounted at a rate that properly reflects the time value of the money and the risks associated with the cash flows. In other cases Jeetay invests in “Special Situations” which involve the following:
Repositioning assets to higher uses
Mergers and acquisitions / open offers
Restructuring troubled companies
Spin-offs
Buybacks
The fund invests in a company if the market price is quoting at a discount of at least 60% to the intrinsic value. It sells when the market value approaches intrinsic value or it finds a security trading at a steeper discount to intrinsic value.
Jeetay believes that while in the long term, a company is valued by its fundamentals, short term mispricing occurs due to investor psychology, liquidity and macroeconomic factors. This provides opportunities for the diligent and patient investor to make outstanding risk-adjusted returns.
The time horizon of Jeetay is 3-5 years. It believes that short-term market movements can be volatile and the market may recognize mispricing only in the medium to long term. Hence the emphasis is on understanding the corporate strategy and the resultant cash flows for a 3-5 year period. The probability of the markets recognizing the mispricing becomes high over the medium to long-term period.
The firm does not limit its investments to certain asset classes or sectors. The fund evaluates any sector or asset class where a conservative estimate of intrinsic value is determinable with a reasonably high probability and invests if the security is available at a reasonable margin of safety.
The firm does extensive research to arrive at estimates of expected cash flows, asset values and earnings. Jeetay culls information from public databases, quarterly and annual filings, annual reports, meetings with management, competitors, vendors, customers and other industry participants, industry experts, trade journals and bankers. Jeetay has extensive networks in India to get data and information for superior analysis. Jeetay believes that a disciplined private equity approach to investing that stresses on buying at a discount to intrinsic value will deliver consistent absolute above average investment returns and safeguard capital irrespective of the state of the markets.
Jeetay believes that the following steps are essential to its process:
1. Opportunity Identification. Jeetay identifies opportunities through a multitude of ways. Jeetay has numerous financial models and screens that are used to filter investment opportunities within the framework of the investment philosophy. Jeetay has many contacts and professional relationships. This gives it many opportunities consistent with the investment philosophy.
2. Analysis. Jeetay does intensive financial and qualitative analysis on companies once an opportunity is identified. The analysis is mainly to arrive at whether a disparity exists or not between the traded value of the security and its intrinsic value. Jeetay has substantial experience in determining the intrinsic value of a company across sectors. Multiple valuation metrics including discounted cash flow analysis, price to earnings, dividend discount model, price to sales, price to book, comparative analysis is used to arrive at the valuation of a company.
Other than financial analysis, Jeetay extensively meets every possible associate of the company to understand the opportunity better. These include vendors, customers, middle management, bankers, competitors, large stakeholders and senior management. This helps Jeetay arrive at a closer intrinsic value and also exit an investment if unfavourable events arise or the team’s original calculation of intrinsic value was wrong.
The analysis would focus on the 3B’s, – Understanding the business, analyzing the balance sheet and looking for bargains.
Take each in turn
Business: What is the nature of the business and its competitive strengths and weaknesses? What is the competitive ecological niche that it occupies and how protected are its profits from predators there? What are the nature of the entry barriers or ‘moats’ - , intangible assets, switching costs, network effects, cost advantages? How wide and deep are the moats? Does the business cover its cost of capital? A qualitative assessment of the business should be made to understand whether it is a superior or inferior business. Evidence of pricing power or the ability to lower cost of production and distribution should be searched for.
Balance Sheet: In order of importance is the balance sheet, the cash flow statement and the profit and loss account.
Bargains: One need not to be able to determine value exactly to know whether a stock is cheap or not. As Ben Graham wrote “To use a homely smile, it is quite possible to decide by inspection that a woman is old enough to vote without knowing her age, or that a man is heavier than he should be without knowing his weight.” A discount to value, a ‘margin of safety’ is paramount, without which an investor is relying on the whims of “Mr. Market” for his investment return.
Q.. As a follow up question, how do you determine intrinsic value?
A. The textbook definition of Intrinsic Value is the present value of the future cash flows discounted at a rate that realistically reflects the time value of money, risk and volatility of the cash flows.
The problem is that it is difficult to
1. determine the future free cash flows
2. determine the discount rate
3. determine the terminal value
There are very few companies, i.e. those that are franchises earning well over their cost of capital and growing whose intrinsic value can be calculated using the Dcf approach. Ben Graham’s methods of bargain identification is useful in other cases.
You don’t have to calculate intrinsic value with precision (especially where it is not possible) to know whether a stock is cheap in seldom to its value or not.
Q. Do you invest in foreign companies? If so, do you evaluate foreign companies different than those based in India and how do you hedge currency exposure(s)?
A. Have not invested in foreign companies as of yet. Sitting in India, I would have to invest in the large cap stocks in foreign markets, and have not as yet found large caps in USA to be cheap in relation to my investing universe in India. Whilst markets may change, valuation principles are universal-they are the same whether it’s the USA or India.
Q. How many stocks do you typically hold in your portfolio?
A. In my family portfolio, given the time horizon and tax considerations, there is a heavy concentration on a few stocks that have franchise value and entry barriers. There are smaller positions, but the bulk of the portfolio is in a handful of stocks.
In the managed accounts, price in relation to value is of paramount importance and many of the businesses are clearly not franchises. The portfolio thus in the managed accounts tends to be more diversified with roughly around 18-25 positions. Cash is carried at all times in the managed portfolios, the level directly correlated with the valuation of the broad market.
Q. Do you invest in any fixed income? If so, tell us about the role of fixed income investments in your portfolio.
A. I do not normally invest in fixed income securities. Cash is usually a default position and varies directly with the level of the market. The cash is usually kept in the bank or in money market funds. I do not like to take a credit risk with money that I know will eventually be opportunistically deployed in the stock markets. The key is to be able to sit on your low-yielding cash without losing your patience.
Q. . How do you judge a company’s management?
A. There are three ways of looking at management
1. their integrity
2. their competence – both operational and in capital allocation
3. their corporate governance
In the end you want to deal with people who do not make your stomach churn. Integrity and competence are both necessary in top management. Finally there is the factor of the passion to improve the game by never becoming complacent.
Sometimes a good price can cover a multitude of sins, including poor management. But if I had to hold a non-franchise investment for any length of time, management would certainly be an important factor. In many cases, it is the jockey, not the horse that one should bet on.
Q. What makes you sell an investment?
A. I sell when
My original thesis was wrong
Price is reached
A better option comes along
Ben Graham’s criterion should be kept in mind. Switch for
1. Increased security
2. Larger yield
3. Greater chance for profit
4. Better marketability
Q. How do you look at risk?
A. Risk is very subjective. Academic theory has one definition of risk namely standard deviation which is wrong. Actually, if one had to use statistical distributions to measure risk, then there are three dimensions, Variance, Skewness & Kurtosis.
I do not think however that risk can only be captured by statistical measures. To me, risk is simply the chance of permanent loss of capital and an investors’ job is to eliminate that risk. He may not be able to do so for individual securities, even with a margin of safety, but he has to do it in a portfolio context.
Q. What’s your take on leverage?
A. Leverage is one of the two things that can cause a permanent loss of capital to a value investor. Avoid it, unless you are willing to take a risk of a permanent loss to your capital. The other thing that can cause a permanent loss of capital is holding on to overvalued stocks, but I assume that a value investor would not do that.
I always carry cash for optionality, rather than borrow against my holdings should the opportunity arise.
Q. Do you invest in commodities, gold, real estate, etc? If so what has been your experience with these classes?
A. I have legacy investments in real estate. I view it as an inflation hedge and a different asset class in the portfolio.
Currently I have investments in gold as a hedge against a highly likely decline in the value of the dollar and a meltdown in financial assets. The economic problems in US are severe and the wrong treatment is being given. When fiscal and monetary insanity prevails, gold always reigns supreme. I’m not making a directional bet on gold prices – it is only a hedge against my financial investments.
Q. Tell us a little more about your involvement with special situations?
A. It depends on the definition of “special situations”. If special situations means a value stock with identifiable catalysts like change in management, operational and financing restructuring, buybacks, mergers and acquisitions etc, then we certainly do invest in special situations. We have investments in spin offs and in open offers as a result of takeovers.
Q. Have you ever taken the role as an activist investor, would you ever do so?
A. I’ve never wanted to take a confrontational attitude with management although sometimes I’m forced to. If I’m not happy with their policies, I sell - but my aim is to influence management through logic and rationality, not through financial blackmail.
There is a grey area however. I’ve been connected with the press through my columns in various newspapers and magazines and I’ve written about instances of corporate misgovernance there. But I’ve never threatened management.
I do not have the temperament to fight management or for that matter, anybody. I believe in exiting relationships where there is no mutual respect, rather than slugging it out for dominance.
Q. We understand that you are very focused on bottom up value investing-what has the financial crisis taught you?
A. I wrote this piece awhile ago and it would be related to the question above.
It may be interesting to use a cross-disciplinary approach to the problems and mistakes made by banks in the sub-prime market.
The power of rewards that leads to repeated actions and the flawed compensation structure that led to misaligned incentives could be one mental model. As Raghuram Rajan pointed out in Financial Times (Jan 9, 2008), the compensation practices in the financial sector are deeply flawed. The compensation is based on the so-called ‘alpha’ that a manager of financial asset generates. There are three sources of ‘alpha’:
1) Truly special abilities in identifying undervalued assets (eg. Warren Buffett)
2) Activism – using financial resources to create, or obtain control over, real assets and to use the control to change the payout obtained on the financial investment.
3) Financial engineering – financial innovation or creating securities that appeal to particular investors.
Many managers create ‘fake alpha’ i.e. they appear to create excess returns but are taking on ‘tail’ risks which produce a steady return most of the time as compensation for the very rare, very negative returns (‘black swans’). The AAA rated CDOs generated higher returns than similar AAA rated bonds. The ‘tail risk’, so evident in hindsight, of the CDO defaulting was not as small as perceived and so the excess return was compensation for that.
The credit rating agencies that rated these securities as AAA because of their ‘insured’ status were themselves wrongly incentivized (compensated by the issuers of the securities). Furthermore once their peers started issuing AAA ratings, ‘social proof’ came into play and the ratings war as to who assigned the highest ratings for junk became a classic Prisoners’ Dilemma.
The managers themselves seem to have been suffering from
1) self-serving bias (i.e. an overly positive view of their own abilities and an overly over-optimistic view of the future)
2) self-deception and denial for they seem to have indulged in collective wishful thinking
3) bias from consistency tendency (they must have looked for evidence that confirmed their optimistic beliefs and kept on being consistent to their original ideas even when problems surfaced) leading to
4) status quo bias or the do-nothing syndrome
5) impatience in valuing the present more highly than the future again caused by incentives that made them so myopic
6) bias from envy from managers who were making large returns with apparently no extra risk which led to
7) distortion by contrast comparison because the steady escalation of commitments must have seemed incrementally small caused byanchoring to what seemed like small relative numbers
9) social proof which led to imitating the behavior of their peers
10) bias from over-influence by authority in that the CEOs of the banks that have suffered the most seem to have been run by people who did not have a ‘trading’ or ‘market’ background and they were swayed by the ‘experts’ they were overseeing which led them to
11) sensemaking in that they were too quick to draw conclusions and may have become
12) reason-respecting in that they complied with requests from their subordinates merely because they had been given some reason leading to
13) a do-something syndrome all caused by
14) mental confusion from stress.
Competition for business must have led to the ‘winner’s curse’ i.e. overestimating the value of the securities and overestimating predictive ability. Collectively they did not foresee that their actions had adverse systemic consequences and the implications to their balance sheets if things went wrong (falling housing market, soft economy, bankrupt insurers). They failed to consider the increasing instability due to their actions caused a phase change as a tipping-point was reached and that a system is only as strong as its weakest link.
In factoring the odds, the managers seemed to have underestimated risk exposure where the frequency and magnitude of consequences was unknown because of the novelty of the securities. They seem to have underestimated the number of possible outcomes for the unwanted events currently being witnessed. They certainly do not seem to have correctly calculated expected values or else they would not be in the hole they are currently in. They in fact did not consider the consequences of being wrong. They probably worked in an ‘illusion of control’ over what were probabilistic events and thus did not factor in a ‘margin of safety’. In the limited history of the securities, the managers overestimated the evidence from the small sample of data.
From an anthropological viewpoint that was commented on by Gillian Tett in FinancialTimes, one should look at the political structures of the survivors. CEOs of the relatively unscathed banks ‘tended to be meddlers – very hands on’. They had a direct career experience in trading and managing market risk. Thus the mind-set was different from being a lawyer or a salesman. Furthermore, the losers had more hierarchical structures in which the different ‘business lines have existed like warring tribes, answerable only to the chief. Moreover the most profitable tribe has inevitably wielded the most power – and thus was untouchable and inscrutable to everyone else.’
This is proving to be a game of chicken between the regulators and the players (banks and monoline insurers). In a classic game of chicken, two cars drive towards each other. The first driver who turns loses. Of course, if neither car swerves then there is a crash. The best outcome for each player results when he goes straight whilst his opponent turns. Insane players have a massive edge in a game of chicken. At this point of time, the jury is out given the level of insanity in the system.
Q. How have you evolved as an investor?
A. I guess the process of evolution is never over. I started out knowing nothing but efficient markets and so the leap to value investing was a big one. I know I’ll never leap out of value investing, but the nuances may undergo changes, as also my ability to widen and deepen my circle of competence.
Q. What is the most interesting part of your job?
A. It is searching for investment ideas, working out the odds and reading from a wide variety of sources.
Q. Which books would you recommend?
A. Here are a few, but they are by no means exhaustive.
Everything by Jared Diamond
Everything by Garett Hardin
“The Road to Serfdom” - Friedrich Hayek
“The Prophet of Innovation”
“More than your know” - Michael Mauboussin
“The Robot’s Rebellion”
“The mind of the market” - Michael Shermer
Try to read all of Mr. Munger’s book recommendations and also the books in Mr. Peter Bevelin’s Bibliography in “Seeking Wisdom: From Darwin to Munger”. I do not think that I’ll be able to read all the books that have been recommended in my life time but I’m going to give it a shot.
Q. What is the biggest mistake keeping investors from reaching their goals? How have you guarded yourself against this folly?
A. Greed, fear, sloth and envy are the four emotions that are positively inimical to becoming a better investor.
Meditation, detachment from results, but attachment to efforts, yoga, discipline in living and thinking are some of the ways for self-improvement in investing.
One must also have an open mind to new ideas and try to become in the words of Mr. Munger “a learning machine.”
Q. What should investors understand before investing in India?
A. Indian markets are very volatile, so be very careful on entry prices. “Growth” is a seductive term and stories woven about growth even more seductive, but be very careful of paying too much for it. Homework matters. Liquidity can dry up, so be clear whether you can live with relatively illiquid positions.
Closing Questions
Q. If you could do anything besides allocating capital what would you do?
A. I would teach and write more often than I do.
Q. What message/advice would you give to readers of SimoleonSense?
A. Read a lot, be disciplined, be humble about your knowledge and stay within your circle of competence.
Q. What does the future hold for you, your funds, and website? Are you going to do this forever?
A. As long as I can, mentally and physically.
Indian shares post best weekly rise in 11 weeks
* Main index gains 0.9 pct on day, up 4.5 pct on week
* Banks, outsourcers lead gains on improving outlook
* Liquidity drives rally; foreign inflows $14.8 bln this year (Updates to close)
By Ami Shah
MUMBAI, Nov 13 (Reuters) - Indian shares climbed 0.9 percent on Friday led by banks and outsourcers and propelled the main index to its best weekly gain in 11 weeks, supported by rising foreign portfolio investment.
The 30-share BSE index .BSESN rose 4.5 percent on the week, taking gains this month to 6 percent after sliding 7.2 percent in October, which was its worst performance in a year.
"Ihe rally is driven by liquidity, which is fuelled by dollar weakness," said Manish Sonthalia, portfolio management services manager at Motilal Oswal.
Foreign funds have moved $14.8 billion into Indian stocks this year, lifting the BSE index nearly 75 percent. In 2008, they had pulled out more than $13 billion and the benchmark fell over half.
Private lenders ICICI Bank (ICBK.BO) and HDFC Bank (HDBK.BO) were among the gainers on hopes rising industrial activity will boost demand for loans and the long-term outlook.
"We expect bank credit growth to rise to 16 percent year-on-year by March 2010," Morgan Stanley said, adding it will accelerate to 22 percent by end-2010 as capital expenditure also begins to recover next year.
The BSE index closed up 0.92 percent, or 152.80 points, at 16,848.83. Twenty-five of its components advanced.
ICICI Bank and HDFC Bank rose 1.6 percent and 0.4 percent respectively while SBI gained 0.1 percent.
Export-focused software services companies climbed as the sector outlook was positive, with orders set to rise and hiring plans picking up, R. Ganesh, director of Systematix Shares, said.
Bellwether Infosys Technologies (INFY.BO) rose 1.5 percent to 2,358.80 rupees.
Sector leader Tata Consultancy (TCS.BO) added 2.5 percent to 670.20 rupees and Wipro (WIPR.BO) firmed 1.2 percent to 632.70 rupees.
State-run oil and gas producer Oil & Natural Gas Corp (ONGC.BO) rose 3.1 percent to 1,183.50 rupees on market talk the oil ministry had proposed a hike in gas prices. Continued...
* Banks, outsourcers lead gains on improving outlook
* Liquidity drives rally; foreign inflows $14.8 bln this year (Updates to close)
By Ami Shah
MUMBAI, Nov 13 (Reuters) - Indian shares climbed 0.9 percent on Friday led by banks and outsourcers and propelled the main index to its best weekly gain in 11 weeks, supported by rising foreign portfolio investment.
The 30-share BSE index .BSESN rose 4.5 percent on the week, taking gains this month to 6 percent after sliding 7.2 percent in October, which was its worst performance in a year.
"Ihe rally is driven by liquidity, which is fuelled by dollar weakness," said Manish Sonthalia, portfolio management services manager at Motilal Oswal.
Foreign funds have moved $14.8 billion into Indian stocks this year, lifting the BSE index nearly 75 percent. In 2008, they had pulled out more than $13 billion and the benchmark fell over half.
Private lenders ICICI Bank (ICBK.BO) and HDFC Bank (HDBK.BO) were among the gainers on hopes rising industrial activity will boost demand for loans and the long-term outlook.
"We expect bank credit growth to rise to 16 percent year-on-year by March 2010," Morgan Stanley said, adding it will accelerate to 22 percent by end-2010 as capital expenditure also begins to recover next year.
The BSE index closed up 0.92 percent, or 152.80 points, at 16,848.83. Twenty-five of its components advanced.
ICICI Bank and HDFC Bank rose 1.6 percent and 0.4 percent respectively while SBI gained 0.1 percent.
Export-focused software services companies climbed as the sector outlook was positive, with orders set to rise and hiring plans picking up, R. Ganesh, director of Systematix Shares, said.
Bellwether Infosys Technologies (INFY.BO) rose 1.5 percent to 2,358.80 rupees.
Sector leader Tata Consultancy (TCS.BO) added 2.5 percent to 670.20 rupees and Wipro (WIPR.BO) firmed 1.2 percent to 632.70 rupees.
State-run oil and gas producer Oil & Natural Gas Corp (ONGC.BO) rose 3.1 percent to 1,183.50 rupees on market talk the oil ministry had proposed a hike in gas prices. Continued...
Friday, November 13, 2009
Gujarat broker opens window to global market
Ahmedabad, Nov. 12 Ahmedabad-based Vimal Stocks Ltd has announced a strategic alliance with UK-based Spread Co to give investors an opportunity to put money in global markets.
Vimal Stocks – founded in 2006 to provide brokerage, research and portfolio management – said its alliance with Spread Co has resulted in a new entity, Vimal Trade. The new company would help investors get access to global markets with local support, said Mr Darshan Shah, CEO, Vimal Stocks, at a press conference.
Vimal Trade would provide online trading platform with offices in London and Singapore. It would hold a conference for investors and traders here on November 14, after which the new facility would be made available.
Through its product Indian Premium Securities, Vimal Trade would also bring foreign exchange trading across world markets to investors. With this, high net worth investors would be able to trade in world markets from one online trading account. Vimal Trade will also help multiply the client's money through research-based investment, said Mr Devang Shah, Head of Sales and Marketing.
Investors would be able to trade as little as one share, one index unit and 5,000 units of currencies.
Markets will remain open for 24 hours, between 10 p.m. on Sunday evening (London time) and 10 p.m. on Friday evening (London time). The new entity intends to open its corporate office in Mumbai by March 2010 and plans to come out with an IPO by March 2012.
Vimal Stocks – founded in 2006 to provide brokerage, research and portfolio management – said its alliance with Spread Co has resulted in a new entity, Vimal Trade. The new company would help investors get access to global markets with local support, said Mr Darshan Shah, CEO, Vimal Stocks, at a press conference.
Vimal Trade would provide online trading platform with offices in London and Singapore. It would hold a conference for investors and traders here on November 14, after which the new facility would be made available.
Through its product Indian Premium Securities, Vimal Trade would also bring foreign exchange trading across world markets to investors. With this, high net worth investors would be able to trade in world markets from one online trading account. Vimal Trade will also help multiply the client's money through research-based investment, said Mr Devang Shah, Head of Sales and Marketing.
Investors would be able to trade as little as one share, one index unit and 5,000 units of currencies.
Markets will remain open for 24 hours, between 10 p.m. on Sunday evening (London time) and 10 p.m. on Friday evening (London time). The new entity intends to open its corporate office in Mumbai by March 2010 and plans to come out with an IPO by March 2012.
Thursday, November 12, 2009
No wall yet to hold capital flows: Fin secy
NEW DELHI: The government has ruled out any curbs on capital inflows even though the inflows in the initial months of the current fiscal are
almost on par with corresponding months of 2007-08, the year several measures to curb inflows were put in place as monetary management had become difficult.
“Flows are not a cause for concern...We are watching the situation... There is no need for specific action now,” finance secretary Ashok Chawla said on Wednesday told reporters on the sidelines on a seminar organised by economic think-tank ICRIER.
That government may still be concerned about capital inflows is evident in that it has said that there are no immediate plans to review the cap on foreign institutional investment (FII) limit in the corporate bonds from the current $15 billion.
Though officials refused to read too much into it. “A review is called for only if at least 80% of the cap is utilised and FII investment in corporate bonds was yet to reach that stage,” a finance ministry official said on the sidelines of the same seminar.
Mr Chawla pointed that rise in foreign inflows into the country was on the expected lines. “Perception was that as financial markets in industrial economies defreeze, money will move into countries considered attractive for investment,” he said adding that the government as well as market regulator Sebi and the central bank were keeping a watch on the situation.
India saw foreign investments inflows of $ 27.5 billion in April-August this year. At the current pace, inflows could cross the $61.6 billion for entire 2007-08, when the country undertook tough measures including imposing restrictions on participatory notes (PN) and external commercial borrowings.
PNs are derivatives issued against an underlying Indian security, which could be shares or derivatives, by foreign portfolio investors registered in India to overseas investors who want trade anonymously, without registering with the local authorities.
Net invisibles in April-June 2009 were also almost on par with corresponding quarter last year. Increase in foreign money inflow has led to over 8% appreciation the Indian rupee vis-a-vis the greenback.
The RBI has already expressed concerns over rising capital flows, which could further go up following monetary tightening which looks imperative in view of inflationary concerns. Higher interest rates in India compared to near zero in many countries could cause more funds to come flow.
Head of Prime Minister’s key advisory body — Prime Minister’s Economic Advisory Council, C Rangarajan on Wednesday also alluded to monetary tightening kicking in earlier if inflation pressures develop. The RBI has already hiked its inflation estimate to 6.5% by March 2009 from 5% earlier.
On a separate issue of developing the corporate bonds market, the official said that repos, or repurchase agreements, in corporate bonds may kick-in by next calendar
almost on par with corresponding months of 2007-08, the year several measures to curb inflows were put in place as monetary management had become difficult.
“Flows are not a cause for concern...We are watching the situation... There is no need for specific action now,” finance secretary Ashok Chawla said on Wednesday told reporters on the sidelines on a seminar organised by economic think-tank ICRIER.
That government may still be concerned about capital inflows is evident in that it has said that there are no immediate plans to review the cap on foreign institutional investment (FII) limit in the corporate bonds from the current $15 billion.
Though officials refused to read too much into it. “A review is called for only if at least 80% of the cap is utilised and FII investment in corporate bonds was yet to reach that stage,” a finance ministry official said on the sidelines of the same seminar.
Mr Chawla pointed that rise in foreign inflows into the country was on the expected lines. “Perception was that as financial markets in industrial economies defreeze, money will move into countries considered attractive for investment,” he said adding that the government as well as market regulator Sebi and the central bank were keeping a watch on the situation.
India saw foreign investments inflows of $ 27.5 billion in April-August this year. At the current pace, inflows could cross the $61.6 billion for entire 2007-08, when the country undertook tough measures including imposing restrictions on participatory notes (PN) and external commercial borrowings.
PNs are derivatives issued against an underlying Indian security, which could be shares or derivatives, by foreign portfolio investors registered in India to overseas investors who want trade anonymously, without registering with the local authorities.
Net invisibles in April-June 2009 were also almost on par with corresponding quarter last year. Increase in foreign money inflow has led to over 8% appreciation the Indian rupee vis-a-vis the greenback.
The RBI has already expressed concerns over rising capital flows, which could further go up following monetary tightening which looks imperative in view of inflationary concerns. Higher interest rates in India compared to near zero in many countries could cause more funds to come flow.
Head of Prime Minister’s key advisory body — Prime Minister’s Economic Advisory Council, C Rangarajan on Wednesday also alluded to monetary tightening kicking in earlier if inflation pressures develop. The RBI has already hiked its inflation estimate to 6.5% by March 2009 from 5% earlier.
On a separate issue of developing the corporate bonds market, the official said that repos, or repurchase agreements, in corporate bonds may kick-in by next calendar
Wednesday, November 11, 2009
Indian Shares End Lower; Telcos, Metals, Autos Drag
MUMBAI (Dow Jones)--Indian shares snapped a four-day winning streak to end slightly lower Tuesday as telecoms, some autos and metals fell.
The Bombay Stock Exchange's 30-stock Sensitive Index dropped 58.16 points, or 0.4%, to end at 16,440.56.
"This is just profit-booking. Investors are taking advantage of market volatility to make quick profits," said R.K. Gupta, managing director at Taurus Asset Management.
The benchmark Sensex, which had risen 7.1% in the past four sessions, swung between 16,371.66 and 16,677.53 during the day.
"This volatility may continue until fresh liquidity comes into the market," said Gupta.
On the National Stock Exchange, the 50-stock S&P CNX Nifty closed down 16.70 points, or 0.3%, at 4,881.70.
Manish Sonthalia, a portfolio manager at Motilal Oswal Financial Services, said a stronger U.S. dollar versus the rupee is also hurting sentiment.
But he has a positive outlook for the Sensex.
"Any decline in the index is an opportunity to buy," said Sonthalia, who expects the index to reach 18,000 points by March 2010.
Total traded volume on the BSE Tuesday rose to INR59.53 billion, from Monday's INR49.95 billion.
Decliners beat gainers 1,463 to 1,290, while 56 stocks remained unchanged.
Telecoms continued to remain weak. Bharti Airtel, the country's largest cellphone operator by subscribers, slumped 4.5% to end at INR293.75. Reliance Communications closed down 2.9% at INR169.05.
"We remain cautious on the (Indian telecom) sector, given the rapidly declining revenue per minute measure and a move by the entire sector to a per-second billing format, which, in our view, will be revenue-destructive," HSBC said in a note.
Metals were mostly weak as base metal prices on the London Metal Exchange were lower on a stronger U.S. dollar and ahead of China's October preliminary metal import data.
Aluminum producer Hindalco Industries slid 2.0% to INR126.95.
Consumer goods maker Hindustan Unilever dipped 2.3% to INR264.75.
Autos were mixed. Two-wheeler maker Hero Honda Motors slipped 3.3% to INR1,500.40, while Tata Motors, India's biggest auto maker by sales, rose 2.3% to INR593.75.
Reliance Industries gained 1.4% to INR2,052.60 on news that the energy giant has discovered oil in the Cambay basin in the western state of Gujarat.
State Bank of India, the country's largest lender by assets, closed 2.1% higher at INR2,368.10 on expectations of a positive outlook for banks and hopes that the company's recent move to cut deposit rates would help protect margins
The Bombay Stock Exchange's 30-stock Sensitive Index dropped 58.16 points, or 0.4%, to end at 16,440.56.
"This is just profit-booking. Investors are taking advantage of market volatility to make quick profits," said R.K. Gupta, managing director at Taurus Asset Management.
The benchmark Sensex, which had risen 7.1% in the past four sessions, swung between 16,371.66 and 16,677.53 during the day.
"This volatility may continue until fresh liquidity comes into the market," said Gupta.
On the National Stock Exchange, the 50-stock S&P CNX Nifty closed down 16.70 points, or 0.3%, at 4,881.70.
Manish Sonthalia, a portfolio manager at Motilal Oswal Financial Services, said a stronger U.S. dollar versus the rupee is also hurting sentiment.
But he has a positive outlook for the Sensex.
"Any decline in the index is an opportunity to buy," said Sonthalia, who expects the index to reach 18,000 points by March 2010.
Total traded volume on the BSE Tuesday rose to INR59.53 billion, from Monday's INR49.95 billion.
Decliners beat gainers 1,463 to 1,290, while 56 stocks remained unchanged.
Telecoms continued to remain weak. Bharti Airtel, the country's largest cellphone operator by subscribers, slumped 4.5% to end at INR293.75. Reliance Communications closed down 2.9% at INR169.05.
"We remain cautious on the (Indian telecom) sector, given the rapidly declining revenue per minute measure and a move by the entire sector to a per-second billing format, which, in our view, will be revenue-destructive," HSBC said in a note.
Metals were mostly weak as base metal prices on the London Metal Exchange were lower on a stronger U.S. dollar and ahead of China's October preliminary metal import data.
Aluminum producer Hindalco Industries slid 2.0% to INR126.95.
Consumer goods maker Hindustan Unilever dipped 2.3% to INR264.75.
Autos were mixed. Two-wheeler maker Hero Honda Motors slipped 3.3% to INR1,500.40, while Tata Motors, India's biggest auto maker by sales, rose 2.3% to INR593.75.
Reliance Industries gained 1.4% to INR2,052.60 on news that the energy giant has discovered oil in the Cambay basin in the western state of Gujarat.
State Bank of India, the country's largest lender by assets, closed 2.1% higher at INR2,368.10 on expectations of a positive outlook for banks and hopes that the company's recent move to cut deposit rates would help protect margins
Monday, November 9, 2009
Steel firms may face a dismal third quarter
uarterly results of companies engaged in the commodities business are bad crucibles in which forges a view of the future. But operators driven, as they are, by emotion and unconscious fantasy will see a fall in turnover and profits for a particular period, which signals to sell and book profits.
hat is why both Steel Authority of India (SAIL), the country’s largest producer of ferrous metal and Tata Steel, which has given shape to its global ambition by acquiring Corus and also some relatively small steel makers in south east Asia, came under some selling pressure on stock exchanges post announcement of their half yearly results.
While the market reaction to the paring of profits in both cases is on expected lines, astute observers would not fail to notice the significant improvement in house keeping mitigating the impact of steel price falls to a considerable extent. SAIL chairman Sushil Roongta estimates the “adverse impact” of the steep fall in steel prices from the high of corresponding period of last fiscal in the case of his company at around Rs 3,000 crore.
But Roongta, who has come to represent the cerebral face of the industry, responded to the challenge of a weak market by stepping up production of value added items, all round cost control and better fund management. It will be wrong to consider overall saving of Rs 1,000 crore resulting from the host of initiatives in the second quarter as a one off development.
In times like this, pressure builds up on all steel makers to become more efficient by improving techno economic parameters. To the extent this happened in the past quarter should become a permanent feature with SAIL. Net sales of the company slipped 21 per cent to Rs 13,544 crore and net profit by 17 per cent to Rs 1,663 crore in the second quarter on a year-on-year basis.
A combination of steel prices falling as much as Rs 10,100 a tonne to Rs 29,900 from last year’s “historic high” in the second quarter, a Rs 60,000 a tonne set back in realisation from ferro chrome sales, planned shutdown of some units and also accumulation of some slabs now being utilised will explain Tata Steel finishing the quarter with net profit nearly halved to Rs 903 crore.
Though not widely known, chrome concentrate and ferro alloys constitute an important portfolio for Tata Steel. Not only is Tata Steel the unquestioned leader in ferro chrome business here with a market share of around 36 per cent but for major part of last year when global producers were stretched to meet the soaring demand for the alloy, it claimed a 4 per cent share of the world market.
It will be begging the question to know the fate of others in the industry when SAIL and Tata Steel with the benefit of total sourcing of good quality iron ore from owned mines had to take a hit in profits. But then how did JSPL manage to raise net profit by Rs 791 crore to Rs 1,797 crore in the first half? Take a look at segment-wise results of JSPL for the answer. The company’s bottom line got the boost entirely from power business where profit before tax and interest rose to Rs 1,869 crore from Rs 741 crore. That JSPL’s profits from iron and steel segment saw a colossal fall then go without saying. Downturn in the commodity in line with other metals ate into profits of other steel makers too.
Don’t expect anything much better to happen to the steel industry’s profits in this third quarter. Hasn’t Roongta said that prices of long products have come under pressure because of comfortable domestic supply scene while the flats are going through price correction? What should, however, bring some relief to the industry is that long-term contracts for coking coal done at rates of around $300 a tonne have started ending. According to Tata Steel CFO Koushik Chatterjee, “The blended coal cost will fall to $160 a tonne in the December quarter.”
Profit erosion should not detract attention from the bigger picture of our steel consumption growing at least 9 per cent this year. At this stage of our economic development, growth in use of steel will remain some percentage points ahead of GDP growth rate.
Steel minister Virbhadra Singh is right that a whole new big market for steel will open up in Indian semi-urban and rur al areas provided the material becomes easily available and at “affordable rates.”
Singh is to the point that before a strategy to promote steel use in basically virgin areas is formulated we should get a comprehensive survey done. To make the survey broad based, the ministry’s consulting arm JPC will cover 300 districts and 1,500 villages.
hat is why both Steel Authority of India (SAIL), the country’s largest producer of ferrous metal and Tata Steel, which has given shape to its global ambition by acquiring Corus and also some relatively small steel makers in south east Asia, came under some selling pressure on stock exchanges post announcement of their half yearly results.
While the market reaction to the paring of profits in both cases is on expected lines, astute observers would not fail to notice the significant improvement in house keeping mitigating the impact of steel price falls to a considerable extent. SAIL chairman Sushil Roongta estimates the “adverse impact” of the steep fall in steel prices from the high of corresponding period of last fiscal in the case of his company at around Rs 3,000 crore.
But Roongta, who has come to represent the cerebral face of the industry, responded to the challenge of a weak market by stepping up production of value added items, all round cost control and better fund management. It will be wrong to consider overall saving of Rs 1,000 crore resulting from the host of initiatives in the second quarter as a one off development.
In times like this, pressure builds up on all steel makers to become more efficient by improving techno economic parameters. To the extent this happened in the past quarter should become a permanent feature with SAIL. Net sales of the company slipped 21 per cent to Rs 13,544 crore and net profit by 17 per cent to Rs 1,663 crore in the second quarter on a year-on-year basis.
A combination of steel prices falling as much as Rs 10,100 a tonne to Rs 29,900 from last year’s “historic high” in the second quarter, a Rs 60,000 a tonne set back in realisation from ferro chrome sales, planned shutdown of some units and also accumulation of some slabs now being utilised will explain Tata Steel finishing the quarter with net profit nearly halved to Rs 903 crore.
Though not widely known, chrome concentrate and ferro alloys constitute an important portfolio for Tata Steel. Not only is Tata Steel the unquestioned leader in ferro chrome business here with a market share of around 36 per cent but for major part of last year when global producers were stretched to meet the soaring demand for the alloy, it claimed a 4 per cent share of the world market.
It will be begging the question to know the fate of others in the industry when SAIL and Tata Steel with the benefit of total sourcing of good quality iron ore from owned mines had to take a hit in profits. But then how did JSPL manage to raise net profit by Rs 791 crore to Rs 1,797 crore in the first half? Take a look at segment-wise results of JSPL for the answer. The company’s bottom line got the boost entirely from power business where profit before tax and interest rose to Rs 1,869 crore from Rs 741 crore. That JSPL’s profits from iron and steel segment saw a colossal fall then go without saying. Downturn in the commodity in line with other metals ate into profits of other steel makers too.
Don’t expect anything much better to happen to the steel industry’s profits in this third quarter. Hasn’t Roongta said that prices of long products have come under pressure because of comfortable domestic supply scene while the flats are going through price correction? What should, however, bring some relief to the industry is that long-term contracts for coking coal done at rates of around $300 a tonne have started ending. According to Tata Steel CFO Koushik Chatterjee, “The blended coal cost will fall to $160 a tonne in the December quarter.”
Profit erosion should not detract attention from the bigger picture of our steel consumption growing at least 9 per cent this year. At this stage of our economic development, growth in use of steel will remain some percentage points ahead of GDP growth rate.
Steel minister Virbhadra Singh is right that a whole new big market for steel will open up in Indian semi-urban and rur al areas provided the material becomes easily available and at “affordable rates.”
Singh is to the point that before a strategy to promote steel use in basically virgin areas is formulated we should get a comprehensive survey done. To make the survey broad based, the ministry’s consulting arm JPC will cover 300 districts and 1,500 villages.
State Bank of India gains 5.2 per cent
he stock was the largest gainer among Sensex companies and rose 5.2 per cent to Rs 2,318.55, after the state-run bank entered into an agreement with T Rowe Price under which the bank will sell 6.5 per cent holding each in UTI Asset Management Company and UTI Trustee Company.
After the sale its holding would be reduced to 18.5 per cent. Last week, the bank announced reduction in interest rates on deposits by 25-50 basis points for a few maturities. The cut in deposit rates will bring down the cost of funds.
After the sale its holding would be reduced to 18.5 per cent. Last week, the bank announced reduction in interest rates on deposits by 25-50 basis points for a few maturities. The cut in deposit rates will bring down the cost of funds.
Thursday, November 5, 2009
A PRACTICAL APPROACH TO PORTFOLIO MANAGEMENT
Portfolio Management is used to select a portfolio of new product development projects to achieve th following goals:
- Maximize the profitability or value of the portfolio
- Provide balance
- Support the strategy of the enterprise
Portfolio Management is the responsibility of the senior management team of an organization or business unit. This team, which might be called the Product Committee, meets regularly to manage the product pipeline and make decisions about the product portfolio. Often, this is the same group that conducts the stage-gate reviews in the organization.
A logical starting point is to create a product strategy - markets, customers, products, strategy approach, competitive emphasis, etc. The second step is to understand the budget or resources available to balance the portfolio against. Third, each project must be assessed for profitability (rewards), investment requirements (resources), risks, and other appropriate factors.
The weighting of the goals in making decisions about products varies from company. But organizations must balance these goals: risk vs. profitability, new products vs. improvements, strategy fit vs. reward, market vs. product line, long-term vs. short-term. Several types of techniques have been used to support the portfolio management process:
- Heuristic models
- Scoring techniques
- Visual or mapping techniques
The earliest Portfolio Management techniques optimized projects' profitability or financial returns using heuristic or mathematical models. However, this approach paid little attention to balance or aligning the portfolio to the organization's strategy. Scoring techniques weight and score criteria to take into account investment requirements, profitability, risk and strategic alignment. The shortcoming with this approach can be an over emphasis on financial measures and an inability to optimize the mix of projects. Mapping techniques use graphical presentation to visualize a portfolio's balance. These are typically presented in the form of a two-dimensional graph that shows the trade-off's or balance between two factors such as risks vs. profitability, marketplace fit vs. product line coverage, financial return vs. probability of success, etc.
The chart shown above provides a graphical view of the project portfolio risk-reward balance. It is used to assure balance in the portfolio of projects - neither too risky or conservative and appropriate levels of reward for the risk involved. The horizontal axis is Net Present Value, the vertical axis is Probability of Success. The size of the bubble is proportional to the total revenue generated over the lifetime sales of the product.
While this visual presentation is useful, it can't prioritize projects. Therefore, some mix of these techniques is appropriate to support the Portfolio Management Process. This mix is often dependent upon the priority of the goals.
Our recommended approach is to start with the overall business plan that should define the planned level of R&:D investment, resources (e.g., headcount, etc.), and related sales expected from new products. With multiple business units, product lines or types of development, we recommend a strategic allocation process based on the business plan. This strategic allocation should apportion the planned R&D investment into business units, product lines, markets, geographic areas, etc. It may also breakdown the R&D investment into types of development, e.g., technology development, platform development, new products, and upgrades/enhancements/line extensions, etc.
Once this is done, then a portfolio listing can be developed including the relevant portfolio data. We favor use of the development productivity index (DPI) or scores from the scoring method. The development productivity index is calculated as follows: (Net Present Value x Probability of Success) / Development Cost Remaining. It factors the NPV by the probability of both technical and commercial success. By dividing this result by the development cost remaining, it places more weight on projects nearer completion and with lower uncommitted costs. The scoring method uses a set of criertia (potentially different for each stage of the project) as a basis for scoring or evaluating each project. An example of this scoring method is shown with the worksheet below.
Weighting factors can be set for each criteria. The evaluators on a Product Committee score projects (1 to 10, where 10 is best). The worksheet computes the average scores and applies the weighting factors to compute the overall score. The maximum weighted score for a project is 100.
This portfolio list can then be ranked by either the development priority index or the score. An example of the portfolio list is shown below and the second illustration shows the category summary for the scoring method.
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